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Greek Debt, Austerity, and the Myth of the Hypocritical Hun

Author:  Ronald J. Granieri
July 6, 2015

Greek Debt, Austerity, and the Myth of the Hypocritical Hun

Sunday’s referendum in Greece, in which more than 60% of voters rejected the latest offer from the so-called “troika” (International Monetary Fund, European Central Bank, and the European Commission) provided a resounding electoral victory for the government of Prime Minister Alexis Tsipras, though it is unclear what it will mean for the next stages of the ongoing Euro crisis.

Tsipras called the referendum last week rather than continue negotiations with Greece’s creditors, which he claimed were going nowhere. His abrupt decision led to the expiration of aid to Greece on 30 June and the withdrawal of troika’s last offer, though that was the offer that Tsipras called upon his people to accept or reject. European leaders warned that a “no” vote would mean no more negotiations at all, while Tsipras claimed a no vote just meant the Greek people rejected austerity, and that negotiations could then continue on a more solid basis. Tsipras and his Finance Minister Yanis Varoufakis (who called Greece’s creditors “terrorists” for their attempts to encourage a yes vote) heatedly denied that “no” meant Greece wanted to leave the Euro (“Grexit”), let alone the European Union, even as many of their European partners warned otherwise. Most Greeks, facing mounting economic chaos and armed with only a vague idea of the specific deal, apparently welcomed the chance to denounce austerity without jeopardizing Greece’s place in Europe, and believe they can retain the Euro.

Such assumptions are, to put it mildly, optimistic, though the resignation of Varoufakis this morning indicates that Tsipras still hopes to restart negotiations. The coming weeks will show whether Tsipras’ gamble will pay off, and future historians will have to decide whether or when the entire Greek drama will end up a tragedy, a comedy, or a farce.

This latest twist in a years-long saga has been accompanied by an increased wave of criticism of the troika and especially of Germany, considered the sinister mastermind behind austerity.

Criticism of Chancellor Angela Merkel now also includes a historical angle as well. Many Facebook feeds over the weekend were flooded with images of Greek and other European states signing the 1953 London Agreement, which greatly reduced the debt burden on West Germany, and is correctly considered a key moment in the postwar German “Economic Miracle.” Some journalists on the pro-SYRIZA Left have gone so far as to accuse the Germans of hypocrisy in refusing to give Greece the same consideration. Superstar Economic Thomas Piketty has taken the argument a step further, asserting that Germany “has never repaid its debts.”

Such assertions fit into a popular narrative that combines two popular villains (bankers and Germans) into one. Angela Merkel and Finance Minister Wolfgang Schäuble are now not just Mr. Potter, according to this narrative they are hypocrites to boot.

Although one can understand the depth of frustration on all sides of this debate, this particular historical analogy requires a great deal of correction. It can be helpful in encouraging creative thinking about how to resolve the Greek crisis, but not if it is viewed in the ways encouraged by Piketty and the Guardian, which are at best incomplete if not tendentiously false.

It is certainly true that in 1953 West Germany and its creditors reached an agreement that greatly reduced the debt burden on Germans. That agreement encouraged economic growth that helped not only Germany but also Europe as a whole. But that agreement did not spring fully clothed from the minds of the world’s bankers, nor was it a simple act of charity.

West Germany in 1953 was indeed treated differently than Greece in 2011-2015. What the Facebook meme forgets is that West Germany got that debt deal after the destruction of a war (which Germany did indeed start), four years of military occupation, major loss of German territory (West Germany included barely 60% of the total territory of Germany as of 1937), waves of refugees that needed to be resettled, national division, hyperinflation and a currency reform—and, it should be added, the writing of a new constitution that created a new democratic state, the Federal Republic of Germany in 1949. Successful negotiations also required West Germany after 1949 to assume legal obligation for all debts of all previous German states and to agree to pay reparations for crimes committed by the Nazi regime (even as the other German state refused to do either). Finally, that agreement only came after the government of Konrad Adenauer demonstrated its willingness to submit both West German heavy industry (in the European Coal and Steel Community) and its military (in the ill-fated European Defense Community) to supranational European authority. West Germany also behaved differently than Greece—demonstrating a willingness to make compromises for Europe, and also enduring a period of austerity and slow wage growth, in order to help create the political atmosphere that made the 1953 debt agreement possible.

Added to all this was the geopolitical encouragement of the Cold War and the larger significance of the German economy for European recovery, as noted by Leonid Bershidsky.

All in all, it’s more than just Germany got some sweet deal they are denying the Greeks.

The 1953 deal was not automatic. West Germany received such consideration only as a result of policies consciously adopted by Chancellor Konrad Adenauer and his Economics Minister Ludwig Erhard, in the face of not inconsiderable domestic opposition. Adenauer strongly believed that West Germany’s future lay in cooperation with the democracies of the West (Westbindung), and in the integration of Western Europe. He was prepared to make significant sacrifices in the immediate term in order to guarantee West Germany’s place in that future Europe. For his trouble, opposition leader Kurt Schumacher denounced him as the “Chancellor of the Allies.” Schumacher and many of his colleagues in the Social Democratic Party (SPD) believed that Germany should be part of the West and should receive economic aid, but believed Germany was so important to the West that Adenauer’s concessions on German national interests were dangerous and unnecessary. The SPD would modify many of these positions in the years to come, but Schumacher made statements in the early 1950s—insisting upon nationalization and refusal to participate in European integration yet demanding assistance from the Allies—that would fit well in an Alexis Tsipras speech today. It’s hard to imagine that strategy succeeding in the 1950s, just as it is hard to imagine an agreement today without mutual compromise.

The simple image of hypocritical Germans rests on a misreading of the historical facts.

All of which is not to say that the Germans in general—then or now—enjoyed some inherent moral advantage over the Greeks. Those kinds of assertions, which one can find in many contemporary discussions about the Euro crisis, are just as misguided and unhelpful as the mythologies of Piketty. The Germans have a large European responsibility, and the government of Angela Merkel is on the spot to offer clear leadership, and she has proven so far to be far too cautious.

The 1953 analogy has much to teach us, but not in the ways that it is currently being used. A clearer historical perspective should help us see that things could have turned out rather differently in the 1950s, but turned out the way they did as a result of conscious choices made by leaders in Europe and the United States. Adenauer pursued his vision of German Westbindung with ruthless consistency, and found partners in French colleagues such as Robert Schuman and Jean Monnet, Italians such as Alcide De Gasperi, and Belgians such as Paul-Henri Spaak, with whom he shared a vision for European integration that helped overcome national suspicions, as well as with the Truman and Eisenhower administrations, who were the key to any international financial accord.

They did not solve all those problems, and left many for future generations. Any hope that we may have of a sensible resolution to the current crisis will require much wiser and more creative leadership than we have seen thus far. Comparing West Germany in 1953 and Greece in 2015, it’s clear that Alexis Tsipras is no Konrad Adenauer. Alas, when it comes to a willingness to speak clearly in favor of European cooperation even at the short-term expense of German national interests, Angela Merkel isn’t either. 

 

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